How To Buy Twitter IPO Shares

If there's one burning question investors have about the Twitter IPO it's this: How can I get shares?

Normally, investment bankers' process of selling shares of initial public offerings is a mundane one that few people pay attention to. But when the IPO is of a company that garners great media attention, as Twitter has, many investors who normally would have no interest in stocks, much less risky ones, say they want to get in line.

The process of selling shares of Twitter will follow the same procedure that most IPOs follow. And that means there will be four ways for investors to possibly get a shot at owning shares of the online messaging service, Twitter:

•Working with a full-service brokerage firm involved in bringing the IPO to market. The investment banking operations running the Twitter IPO include Goldman Sachs, Morgan Stanley, JPMorgan Chase, Bank of America, Merrill Lynch and Deutsche Bank. Each of these investment banking operations also has brokerage operations, which have clients that are often given access to IPOs. Typically, a vast majority of the shares are sold to large clients of these firms, including pension funds and mutual funds. But there might be some shares made available to individual customers of these firms, typically high-net-worth investors. But don't think you can just run out and open an account with Morgan Stanley and expect your broker to sell you Twitter shares. Shares of popular deals are typically given to long-standing customers.

•Checking with your online brokerage firm. If you have an account with an online brokerage, and you'd like to invest in Twitter at the IPO price, call and ask. TD Ameritrade is allowing investors to express interest in the owning Twitter shares, although, at this time it cannot disclose how many shares it will get. If you're a customer of Fidelity, the brokerage firm was allowing customers to express interest in investing in Twitter up through the cutoff on Monday.

•Buying through a mutual fund. Many large technology mutual funds will probably be offered Twitter shares at the IPO price. Since the shares haven't been sold yet, mutual fund companies have not yet disclosed their plans, so it's more or less a guessing game.

•Waiting for the stock to start trading. Investors often think if they don't get in at the so-called offering price, they missed out. The offering price is the price that the very first investors buy shares of an IPO at, currently expected to be $23 to $25 a share. But remember that most of these initial investors are free to sell the next day once regular trading starts, and at that point, anyone can buy. Often, the best course of action is to wait for the stock to trade. There's no guarantee the stock will trade higher, and at least in the case of several recent social media IPOs, the stocks actually dropped.

There are two rules of thumbs when it comes to regular investors and IPOs. First of all, if you don't know how to buy shares of IPOs, you probably shouldn't start now, especially with a deal that's as widely publicized as Twitter. Investing in stocks with long trading histories and stable earnings is tricky enough, and IPOs are even more difficult to buy and sell profitably.

The second rule of thumb is this: If you're a regular investor and you can buy shares in an IPO, you should probably pass. IPOs are doled out on a supply-and-demand basis, and if the large, wealthy investors aren't snapping up the shares, you should ask why not.

Facebook's IPO last year was a classic example. After the company increased the deal size and offering price, large institutions dropped out, and individual investors wound up buying at an over-inflated price and watching half their money vanish until the stock finally recovered in 2013.